2014 may be good year for US economy, Bernanke

2014 should be a good year for the US economy as the worst effects of the housing crash wane and Washington’s fiscal tightening eases, Federal Reserve Chairman Ben Bernanke said in his final major address.

Bernanke, who steps down at the end of this month, cautiously welcomed 2014 as a year of global growth for both the world and US economies. US fiscal policies at both state and federal levels, the debt crisis in Europe, more restrictive lending standards, high debt loads in US households, which all held back growth over the last few years, are now diminishing, he added.

“The combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters. But, of course, if the experience of the past few years teaches us anything, it is that we should be cautious in our forecasts.”

The US economy and the rest of the world

The US economic recovery appears to be occurring at a fasting rate than in the rest of the industrialized world. While GDP in Japan today is still below its pre-recession peak, in the United Kingdom and the rest of Europe it remains 2% and 3% below respectively.

Even so, Bernanke sees “some grounds for cautious optimism abroad as well.” As in the US, other advanced economies’ central banks have taken considerable steps to solidify their financial systems and “provide policy accommodation.”

Bernanke added “Financial-sector reform is proceeding, and the contractionary effects of tight fiscal policies are waning. Although difficult reforms – such as banking and fiscal reform in Europe and structural reform in Japan – are still in early stages, we have also seen indications of better growth in the advanced economies, which should have positive implications for the United States. Emerging market economies have also grown somewhat more quickly lately after a slowing in the first half of 2013.”

Economic growth prospects for the emerging markets depend on a range of factors, especially the extent and efficacy of structural reforms, like those currently being introduced in Mexico and China.

Reducing the $85 billion-per-month bond-buying stimulus program by the Fed to $75 billion is the result of much better job prospects, Bernanke said. However, other policies aimed at boosting economic growth will not be pulled back, he emphasized.